New York’s Metropolitan Transportation Authority is looking to sell more than $1 billion of tax-exempt debt next month, including a $250 million remarketing of variable-rate debt as fixed rate.
The MTA has yet to select a pricing date for the deals. Citi and JPMorgan are the underwriters on the transactions.
Officials plan to convert $250 million of Series 2005G variable-rate bonds to fixed-rate mode as a letter of credit from BNP Paribas for the floating-rate bonds will expire on Dec. 8.
BNP Paribas will not renew the liquidity facility and the authority was not happy with the number of replacement bids it received or the prices offered, MTA finance director Pat McCoy said during a finance committee meeting on Monday.
After the meeting, McCoy declined to say how many bids the MTA received in its search for an alternate liquidity facility.
“I don’t want to get into that,” he told reporters. “It affects our competitive position in the market and our ability to work with these guys.”
On Sept. 29, the agency’s board approved nine selected banks that could bid to replace retiring LOCs or standby bond purchase agreements attached to variable-rate debt. It will have $350 million of those facilities ending in 2010, and $1.4 billion and $1.7 billion expiring in 2011 and 2012, respectively, according to the Sept. 29 board meeting agenda.
“In the interest of achieving the most cost-effective replacement facility, price proposals and terms and conditions will be solicited from at least three banks on the approved list,” the agenda reads.
Even with the nine approved banks, the MTA could not find an affordable replacement liquidity facility for the Series 2005G bonds.
Chief financial officer Robert Foran said during Monday’s committee meeting that his team will also look towards alternatives to LOCs and standby purchase agreements for the authority to capture currently low rates on floating-rate debt.
“There are other ways that we can access the variable-rate or the short-term market that we will be looking at as we go forward, whether it’s something on an index basis without any type of credit facility or whether it’s something, perhaps, on a synthetic basis,” Foran said. “But we are sensitive to the fact that when we fix-out at very attractive rates, as we have now, it’s still higher than the short-term rates that we benefit from. So, we’re trying to do both.”
The MTA also will issue $770 million of Series 2010E transportation revenue bonds to roll over $750 million of outstanding commercial paper into long-term debt.
Officials are also working on swaps with AIG Financial Products Corp. as counterparty. AIG is looking to get out of the derivatives, which total a notional amount of $100 million, and has suggested Deutsche Bank as an alternative counterparty, McCoy told reporters after Monday’s meeting.
The AIG swaps have a current market value of negative $21 million for the MTA. Under its guidelines, any new counterparty on the swaps would need to hold ratings of at least double-A. Moody’s Investors Service rates AIG A3, Standard & Poor’s rates it A-minus, and Fitch Ratings rates it BBB.
“In the negotiating process, you have a willing counterparty that’s willing to effectively cut a check to the exiting counterparty,” McCoy said. “We’re held neutral. Our goal is to stay neutral in the trade.”
Overall, the MTA has 17 swaps for a notional value of $4.22 billion, with a total mark-to-market value of negative $606.2 million, as of Sept. 30. That negative market value has increased by $174.3 million from one year ago. The MTA has $29.1 billion of outstanding debt.
